How To Avoid Cryptocurrency Stock Scams Before You Lose Money!

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BBB Consumer Alerts

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If you are thinking about investing in the stock of companies that tout high returns associated with cryptocurrency — use caution. Do your research, and only invest money you can afford to lose.

In an emerging sector like cryptocurrency, it is not unusual to see both legitimate start-ups and not-so-legitimate players. According to the 2019 BBB ScamTracker Risk Report, cryptocurrency scams are the second riskiest in the nation regarding the prevalence of victims and dollars lost.

These less-than-reputable new companies often make glorified claims about new cryptocurrency-related products and services — including blockchain technologies and Initial Coin Offerings — in an effort to raise the market price of their shares. The buzz around cryptocurrency businesses enables con artists to launch fraudulent ventures that lack transparent financial reporting. Also, scammers will mimic the successful business models of legitimate companies in order to trick investors and steal their money. 

Watch out for these common cryptocurrency scams:

  • Cryptocurrency exit scam: These scams trick consumers into investing in a new form of cryptocurrency. Scammers tell investors they’re guaranteed to earn a huge profit in order to generate as much funding as possible. Some fraudulently claim to be affiliated with famous investors or advertise online. Then, they disappear with all the money. 
  • Fake websites or apps: The internet is full of fake websites and smartphone apps that supposedly enable cryptocurrency exchange. They keep victims hooked by showing fake graphs and exchange rates that make it appear as though they’re investments are growing–often convincing victims to invest more. However, when users attempt to withdraw their money, they’re unable to do so.
  • Social media scams: Scammers use stolen social media accounts to impersonate friends of their victims. They reach out via direct message or make posts offering investment opportunities. Some even use video messages recorded by the original account owner to deceive victims. Before the supposed investment can be completed, scammers demand their victims provide login credentials to their social media accounts as well as a video promoting cryptocurrency investing.
  • Phishing: Phishing emails and text messages prompt recipients to click links or download attachments by promoting cryptocurrency investing. Some phishing attempts have even popped up on Discord, a messaging platform popular among aspiring and active investors. These schemes offer rewards like free investments to attract victims. Others target current investors with claims their accounts have been hacked in an attempt to steal login credentials for their cryptocurrency wallets.
  • Fake celebrity endorsements: Many celebrities as well as tech and financial influencers are involved in cryptocurrency investing, and some scammers advertise their services using fraudulent endorsements. Source: BBB of Greater Maryland

Don’t be fooled by unrealistic predictions of returns and claims made through press releases, spam email, and telemarketing calls or those posted online or in social media threads. These actions may be signs of a classic “pump and dump” stock fraud. To learn more, check out this Anatomy of a Pump and Dump infographic.

Follow These Tips to Avoid Crypto Investment Scams

If you are contemplating a crypto-related stock investment, here are six tips to help you steer clear of scams:

  • Do not say “yes” to cryptocurrency stock purchases from an aggressive cold caller, even if the claims sound plausible, particularly if the recommended stocks are very low-priced. Don’t feel guilty about hanging up. Not answering at all, or putting down the phone, are generally the best and safest responses to a cold caller or anyone aggressively pitching low-priced stocks or other investment opportunities.
  • Be suspicious of anyone who makes guarantees that an investment will perform a certain way. Also, be wary of pushy sales pitches that encourage you to “act now.”
  • Research opportunities before investing. Use FINRA BrokerCheck® to the check registration status of, and for additional information about, the people and firms who tout these opportunities.
  • Find out whether a company files with the Securities and Exchange Commission or Canadian Securities Administrators. In the United States, check the SEC’s EDGAR database and, in Canada, see CSA’s SEDAR database. Read the reports and verify any information you have heard about the company. But remember, the fact that a company has registered its securities or files reports with the SEC or CSA doesn’t mean that the company will be a good investment in general—or the right investment for you.
  • Be wary of stocks with huge spikes in price. This could signal potential manipulation or fraud.
  • Know where the stock trades and pay attention to any cautions associated with the stock. Most stock pump-and-dump schemes tend to be quoted on an over the counter (OTC) quotation platform like the OTC Markets, which provides icons to warn investors of concerns associated with a given company. These include a stop sign to indicate the company cannot or will not provide important information to regulators, exchanges, or the OTC Markets—and also skull and crossbones to warn that the security, company or a person who controls the company might be involved in a spam campaign, questionable marketing, regulatory action or more.

Sources: BBB.org, BBB Institute for Marketplace Trust, FINRA, BBB of Greater Maryland

To learn more about investment scams, read the FINRA Investor Alert: Stock Spams and Scams. If you’ve been the victim of a scam, report it to BBB Scam Tracker. To find a business you can trust, check out BBB.org.